Here’s What Happens After A Tax Holiday

By now, everyone who follows politics and markets is probably well aware that between corporate tax cuts and a planned repatriation holiday, there’s a pretty high likelihood that companies will continue to buy back their own shares.

As you may or may not know, buybacks are a considerably large source of overall equity demand. Remove the corporate bid, and you take away a key part of the bull thesis.

Of course buybacks are funded with debt, and central bank largesse has ensured there’s a perpetual bid for IG and HY credit (if you can’t get any yield on govies, you turn to corporate debt). Essentially it’s a virtuous circle for corporate management teams and shareholders: companies issue debt at low yields, the proceeds are used to buy back shares, EPS is artificially inflated offsetting declining profit growth, share prices rise, everyone gets rich, and around we go.

Well now, thanks to Trump’s policy proposals, the merry-go-round is set to continue as Goldman estimates buybacks will hit a record in 2017.

Below, fine two charts that illustrate what happens immediately after a repatriation “holiday”:

(Charts: Goldman)

What does this do for the working-class Americans who in November adopted Trump as their official (orange-ish) mascot?

Please, don’t leave us hanging! What do you suggest be done with those profits so as to benefit the “working class Americans”? Of course, you will have to exclude from that group ANY stock holders (including all forms of retirement accounts) or any other group that may benefit directly or indirectly. Please be as specific as possible.

And, of course, one presumes that the foul system that created this situation in the first place (and thus deprived all Americans of those tax receipts) will be corrected.

Writing about a subject is the best
way to educate yourself about it, and when I flick through past work I remember how much
they taught me, if no one else. Mainly they taught me that I didn’t know very much. But they
also taught me that most other people didn’t know much either. Thus, some key themes
which stand out include the illusory control of policy makers, the presumed knowledge of
those looking to them to actively do good, the ease with which we fool ourselves, and how
best to protect capital in the face of such unavoidable uncertainty. -- Dylan Grice